Maybe confidence for a sustained rally is in short supply as insiders appeared to stay on the sidelines last week. Most of the notable transactions were made by institutional investors.
The list was sort of like a community box of donuts in the breakroom after lunch, there isn’t much to chose from. All that remains are broken parts and a plain cake donut. So, you grab the plain cake donut, unsure how it tastes, take a small bite to decide if you’ll eat the rest or bury it like a squirrel in the garbage.
That’s what we are going to do with this week’s insider buy. Take a bite of the most appealing of the limited choices from last week’s box of insider buys.
The Chief Executive Officer (CEO) of Porch Group, Inc. (PRCH), Matt Ehrlichman bought a little more than $1 million of the technology company’s shares. (1) Porch provides software and services to more than 20,000 home services companies such as home inspectors, mortgage companies and loan officers, title companies, moving companies, real estate agencies, utility companies, and warranty companies.
Through these relationships and multiple brands, Porch provides a moving concierge service to homebuyers, helping them save time and make better decisions on critical services, including insurance, warranty, moving, security, TV/internet, home repair and improvement, and more.
Ehrlichman’s activity is like the leftover donut in that you don’t know what to expect from it. It’s the only time the CEO bought stock in the open market. Since 2011, all his previous market action was options or tax related and unloading close to $3.5 million of Active Network, now a part of Global Payments Inc. (GPN). (2)
Since the middle of November, the software company’s stock price tumbled from its 52-week of $27.50 to its 52-week low of $5.83 on March 15th. CEO Ehrlichman paid and average $7.59 per share on March 17th and PRCH trades at $7.15 as we type.
Analysts see the potential for a lot of upside for PRCH shareholders with a one-year price target of $20.00. (3) The tech company is aggressively growing the topline with sales increasing 166% in 2021. (4) Wall Street expects the cash register to keep on ringing, forecasting a sales increase of 65.6% in 2022 and 29.4% next year. (5) Porch Group is not expected to make a profit for the foreseeable future.
Since there profits aren’t expected anytime soon, we’ll focus on 2022’s consensus revenue estimate to calculate potential price targets. Since the company went the special purpose acquisition corporation (SPAC) route and began trading on Christmas Eve 2022, investors have valued PRCH at as much as 27 times sales, as little as 3.1 times sales while averaging 14.1 times sales. Meanwhile, the average peer currently trades with a price to sales (P/S) ratio of 3.5 versus 3.75 for the Seattle-based Porch Group.
Wall Street sees sales hitting $318.74 million in 2022. If we take that number and multiple it by the P/S Ratios mentioned in the previous paragraph, we arrive at the following possible price targets:
High P/S Ratio (27): $87.69
Low P/S Ratio (3.1): $10.07
Average P/S Ratio (14.1): $45.79
Current P/S Ratio (3.75): $12.18
Average Peer P/S Ratio (3.5): $11.37
Focusing on the low end of the P/S spectrum, we notice that PRCH has attractive upside based on its low P/S ratio to date, its current and the peer average sales valuations. Of course, sales could miss the target, both to the upside and downside, and investors could be willing to pay more or less for the stock.
OVERALL: CEO Matt Ehrlichman’s first insider buy could prove to be a smart move based on the company’s limited price to sales history and revenue forecasts for this year and next. Considering Porch Group, Inc. (PRCH) dropped from $25.70 to $5.83 in a matter of months shows the fast growing tech company is only appropriate for investors with the highest of risk tolerance.
1 – https://www.secform4.com/insider-trading/1515184.htm
2 – https://www.activenetwork.com/our-story
3 – https://finance.yahoo.com/quote/PRCH?p=PRCH
4 – https://finance.yahoo.com/news/porch-group-reports-fourth-quarter-103500790.html
5 – https://finance.yahoo.com/quote/PRCH/analysis?p=PRCH